Is now a good time to invest in Australian property?

We’re already deep into the 2024-25 financial year, and whether at networking events or family barbecues, we’re frequently asked whether now is a good time to invest in Australian real estate? The answer of course depends (on your own financial situation), but for us, we see some very clear signals of why investors might want to partake in Aussie real estate, from commercial to residential.

National growth rates suggest a steady rise in property values, but of course every state, region and locality adds to or subtracts from this tally in their own unique ways. Regional variations and the type of property you choose—residential or commercial—could significantly impact your investment’s success.

And there’s always that lingering question inside investors’ heads when markets in Perth and Brisbane, for example, are so hot: When will things slow down?

Here, we’ll dive into both sectors to help answer just as big a question: Is now a good time to invest?

Is now a good time to invest in residential property?

Current national trends

Australia’s residential property market is expected to grow by an average of 5 per cent to 6 per cent in 2024, according to forecasts from our major banks, like Commonwealth Bank and Westpac.

This growth is driven by a combination of seriously high demand, low housing supply and increasing interstate and overseas immigration. The combination of these factors don’t just present excellent news for investors looking for robust yields and potential for high capital growth. They signal a housing crisis that appears to plague our nation for years to come. But that’s for another day.

All that said, these national figures don’t tell the whole story. Australia, after all, is too big and diverse a country to go by national figures alone.

City-by-city

While national averages show growth, the performance of individual cities varies significantly.

Sydney and Melbourne have long been the powerhouse markets for property investors, constantly in the spotlight, where owning a property in any one of their CBD-nearing postcodes was (and of course still is) seen as a prize. But due to unsustainable entry costs and extreme market saturation, these cities continue to see slower growth. Melbourne, Australia’s most populated state since April 2023, is even being outperformed by smaller capital cities around the country.

For instance and as of this writing, Perth remains one of the most affordable capital cities with a median house price of $785,250, and has overtaken Melbourne’s median of $776,044 (for the record, so has Adelaide, with a median of $790,800).

Perth’s more affordable prices, combined with an incredible rental yield of 6.9 per cent to 7.2 per cent, make it such a desirable market for investors that the bulk of buyer enquiry originates from the east coast.

Regional highlights

So, where else? With city property prices headed skyward, buyers with more modest budgets must be looking elsewhere for a roof. Two regional localities on the east coast’s radar are:

• City of Maitland (NSW): Located between Newcastle and the Upper Hunter, the regional area offers median property prices around $694,000 and rental yields between 5.3 per cent and 5.7 per cent. Infrastructure projects such as the $835 million Maitland Hospital only increase the region’s long-term investment appeal.
• City of Logan (QLD): With a median price of $854,000 and rental yields around 5.5 per cent, Logan benefits from its location between Brisbane, Ipswich and the Gold Coast, making it a prime area for rental demand?.

Rising interest rates and what to expect in FY25

One of the biggest challenges in 2024 and 2025 is the high interest rate environment, which of course has made borrowing more expensive.

The Reserve Bank of Australia (RBA) has signalled potential rate cuts later in the year, this forecast backed by economic commentators, which could lower the cost of borrowing and improve investor sentiment (particularly for the higher end of the buying field). In the meantime, those looking to invest should carefully consider their financing options and the impact of interest rates on their long-term returns.

Is it a time to play is safe for you? Or a time to go hunting for your next property purchase? It all depends on your financial position and investment goals.

Is now a good time to invest in commercial real estate?

Industrial, retail and office spaces

The industrial market went ballistic a few years ago, when institutional investors realised the need to add the asset class to its portfolio, snatching up warehouses, logistics centres and distribution centres across the country. Which is why industrial assets, especially warehouses and logistics centres, have seen increased demand due to the growth of e-commerce and are expected to perform well in FY25?.

Retail and office spaces, however, present a more complex picture. With more businesses adopting hybrid work models, the demand for office spaces has softened, but prime office locations in major cities like Sydney and Melbourne still hold value. Perth has also bucked the trend of the working-from-home culture, with Perth CBD being tipped for incredible growth as its supply pipeline dwindles and the leasing market’s demand for high-quality CBD office buildings rises.

Key Considerations for investors

1. Interest rates and borrowing costs: With interest rates remaining high, the cost of borrowing may affect your overall return on investment. Investors should weigh the benefits of waiting for a possible rate cut against the potential for continued property price growth.
2. Long-term growth vs. short-term gains: Property is the patient investors’ game, where overnight riches are rarely attained. Regions like Maitland and Logan are poised for long-term growth, offering affordable entry points and high rental yields. On the other hand, higher-cost markets like Sydney may offer slower but more stable growth.
3. Diversification: If you’re looking for passive income, you might consider diversifying between residential and commercial properties. Industrial real estate is currently popular for its high yields, while residential properties in the growth regions we’ve mentioned can provide both capital appreciation and serious rental income.
4. Risk tolerance: It’s essential to assess your tolerance for market fluctuations, especially in sectors and asset classes affected by economic changes. Commercial property is one of those investments. Which is why just as important as understanding your own risk appetite is intimately knowing the impacts of particular nationwide head- and tailwinds (and how they’ll invest your targeted investment class).

Is now a good time to invest in Australian property? The answer, you guessed it, depends on your investment goals and financial situation. For us, nothing is more expensive than a missed opportunity.

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